Tax talks raise bar for richest Americans

By most measures, the personal finances of Anne Zimmerman, a small-business owner in Cincinnati, have little in common with those of Oracle's chief executive, Lawrence J. Ellison.

Zimmerman runs an accounting business and an Internet service company with annual profits of $250,000 to $500,000. Ellison made nearly $15 million in salary, bonuses and perks in 2011, plus $62 million in stock options.

In the deficit reduction debate, however, both Ellison and Zimmerman are grouped in the same sprawling category: wealthy Americans targeted for tax increases. President Obama has focused efforts on raising revenue from the wealthiest 2 percent of taxpayers, calling them "millionaires and billionaires who can afford to pay a little more."

But for all the broad-brush rhetoric, the rate increases and limits on deductions being discussed are calibrated to take the biggest bite out of the highest earners.

They would lead to a smaller increase for those who earn less than $500,000 a year. The figures are all adjusted gross incomes, and since some deductions would be preserved, a household would probably have more than $250,000 in total income, perhaps $300,000, before it would fall into the definition of wealthy used by the president.

If all Obama's tax proposals for wealthy Americans were enacted, they would raise $1.6 trillion over the next decade. And an analysis by the Tax Policy Center, a nonpartisan research firm, found that the increases would be heavily weighted toward the wealthiest. Taxpayers with adjusted gross incomes of more than $1 million would see average increases of $184,504, the study found, with higher taxes on the ultrawealthy bloating that average. Those with adjusted gross incomes from $200,000 to $500,000 would face a tax increase averaging $4,446, with people toward the lower end having only a modest increase and people on the higher end paying several times more.

A married couple with two children earning $300,000 would see their effective tax rate increase to 21.1 percent from 16.5 percent, according to an analysis by the Tax Policy Center. A married couple with two children earning $2 million would see their effective federal income tax rate rise to 26.8 percent from 21.6 percent.

To Zimmerman, the Cincinnati businesswoman, that amount sounds reasonable. "I'm not going to change my business decision-making process based on a few percentage points of tax increases," she said. "If it helps get the country on a better path, well, we're all in this together."

But Republicans have thus far resisted these efforts, countering that the high earners are job creators and that increasing their taxes would discourage hiring. And some conservatives and business advocates warn that the proposed increases could stall the sluggish economic recovery.

"There is a price that comes with these tax increases on the very wealthiest because that is where the capital is concentrated," said William McBride, chief economist at the Tax Foundation, a conservative research firm. "That price is economic growth and hiring."

Both sides in the debate have agreed in principle on raising revenue by reducing or eliminating loopholes, tax subsidies and deductions at the high end of the income scale. Even if the top rates do not rise, the efforts to limit deductions would make the tax system more progressive, with the biggest impact felt by those at the very top in incomes.

About 4 million of the 114 million U.S. households face a possible tax increase. And while they are a narrow slice of the overall population, they are nonetheless a swath of well-to-do Americans so varied that they defy easy categorization. Census data indicate that they cut across a broad range of occupations: doctors, auto dealers and dilettantes, professional athletes and financial planners, family farmers, entrepreneurs, two-income couples, corporate executives and hedge fund managers.

Although they are dispersed across the country, they live in the highest concentrations in South Florida, the suburbs of the Northeast and the West, and in major cities like New York, San Francisco and Los Angeles.